MORNING VIEW: Metals start mixed but buying beginning to emerge

The Dow Jones Industrial Average Index (DJIA) closed down by 10% on Thursday March 12, taking the loss from the February high to 28.3%, while the London Metal Exchange three-month base metals at their recent lows have been down by an average of 16% - ranged between 10.4% for aluminium and 22.2% for zinc.

DJIA futures were up by 1.6% in pre-market trading at 6.45am on Friday morning, although most Asian equities were down between 1.7% and 6%, with only the commodity-focused Australian ASX200 up by 4.4%.

  • Thursday’s 10% stock fall in the United States was the largest since the 1987 crash
  • US Federal Reserve offered $1.5 trillion in short-term loans and other central banks have also been boosting liquidity too.

Base metals
Three-month base metals prices on the LME were mixed this morning, with nickel, aluminium and zinc up by an average of 0.9%, while tin, lead and copper were down by an average of 0.7%, with copper off by 0.2% at $5,423.50 per tonne.

The most-traded base metals contracts on the Shanghai Futures Exchange were for the most part weaker, the exception was May aluminium that was up by 0.3%, while the rest were down by an average of 1.4% - led by a 3% fall in June tin. May copper was off by 0.2% at 43,430 yuan ($6,200) per tonne.

Precious metals
Spot gold prices were up by 0.7% at $1,588.30 per oz this morning compared with Thursday’s close, but were well down from where they were trading ($1,639.03 per oz) at a similar time on Thursday morning. At this morning’s low of $1,551.55 per oz, prices were down by 8.9% from Monday’s peak of $1,702.98 per oz. The gold/silver ratio was trading at 1:100.8.

Wider markets
The yield on benchmark US 10-year treasuries was recently quoted at 0.88%, this compares with 0.75% at a similar time on Thursday and 0.67% on Wednesday, so it does look as though the treasuries were one of the first asset classes to stabilize.

Asian equities were mainly weaker this morning: Nikkei (-6.08%), the Hang Seng (-1.83%), China’s CSI 300 (-1.41) and the Kospi (-3.43%) but the ASX 200 (+4.42%) is up.

The dollar index is rebounding and was recently quoted at 97.58, this after a low of 94.63 on Monday.

Out of the other major currencies we follow, most are consolidating after Thursday’s weakness: the Australian dollar (0.6286), sterling (1.2573) and the euro (1.1168), while the yen is retreating and was recently quoted at 105.82, this after peaking on Monday at 101.19.

Key data
Friday’s key economic data includes German and French consumer price index data, German wholesale prices, UK leading indicators and US consumer sentiment and inflation expectations data from the University of Michigan.

Today’s key themes and views
Most of the base metals spiked lower earlier this morning but have started to rebound robustly, suggesting short-covering and some bargain-hunting. If the rebound in equities gathers pace then we would expect the rebound in the metals to continue for a while before consolidation sets in. But, as more areas in Europe and the US are locked down, then it is likely to further negatively impact demand for metals and in that scenario prices are unlikely to continue rising until the outlook starts to improve.

Gold prices have been falling, but with a 9% fall from peak to trough, they have not fallen as much as the base metals that were down 16%, or as much as the DJIA that has fallen 28.5%.




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